An underwhelming UK services PMI report from Markit prevented the Pound to Australian Dollar (GBP/AUD) exchange rate from continuing last week’s rally on Monday.

GBP/AUD saw considerable gains of around three cents last week. During Monday’s Asian session the pair even briefly touched on a monthly high.

However, GBP/AUD tumbled from the week’s opening levels during Monday’s European session as investors digested Markit’s January UK services PMI.

Markit’s services PMI was forecast to have improved slightly in January, from 54.2 to 54.3. Instead, the figure fell to 53.0 – the weakest reading since September 2016.

Bosses in the sector noted that the slowdown was due to the ‘loss of existing clients and lingering concerns surrounding the UK’s exit from the EU’.

Following three disappointing UK PMIs for January, the overall composite print for the month slipped from 54.9 to a disappointing 53.5. Analysts from Markit stated that this sort of figure was typical of quarterly growth of around 0.3%.

Australian Dollar (AUD) Exchange Rates Pressured by Risk Aversion

Demand for risk-correlated currencies like the Australian Dollar (AUD) weakened last week, as the US Dollar (USD) appeared to finally rebound from its recent lows.

With US data strong and Federal Reserve interest rate hike bets on the rise, the US Dollar has looked more appealing and risky currencies have been sold.

Domestic concerns have also pressured the Australian Dollar over the past week however. As inflation failed to meet expectations and wage growth has subdued too, some analysts have speculated that bearishness is ahead in AUD trade.

Some have even suggested that the Reserve Bank of Australia (RBA) may be more likely to cut interest rates than hike them.

Monday’s Australian ecostats were decent, with the services PMI and TD-MI inflation gauge both improving in January, but this only offered the ‘Aussie’ limited gains against Sterling (GBP).

Both the Bank of England (BoE) and Reserve Bank of Australia (RBA) are set to meet this week with their reactions to recent UK and Australian data are likely to have a notable effect on currency exchange.

The RBA will hold its February policy decision on Tuesday, following the publication of Australia’s December trade and retail sales stats.

If the RBA maintains an optimistic outlook on the economy despite recent weakness in inflation and wages, the Australian Dollar could recover from its lows against the Pound.

A more cautious or even dovish RBA would make it more likely for GBP/AUD to continue last week’s rally instead.

Still, Sterling’s own movement could be limited ahead of Thursday’s Bank of England policy decision. If the bank shows signs of hawkishness on Britain’s economy and inflation, GBP/AUD is even more likely to see stronger gains.

However, if the BoE shows concern with the lasting sturdiness of Britain’s economy, the Pound to Australian Dollar exchange rate could shed much of its recent gain.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Pound Sterling

Euro

Australian Dollar

About TorFX News

TorFX News is your definitive destination to read the latest news about the foreign exchange market. We specialise in reporting on all of the world’s major currencies including the British Pound, the Euro and the US Dollar with the aim of helping you to decide when to trade and get the best deal on your monetary transfers.